Holiday Trading Environment

A strong rally on Monday and Tuesday (Christmas) was prevalent, but a continuation was derailed mid-week. We hit 1450 on the December contract Wednesday before the reversal began. This is indicative of a situation whereby the top is likely in for the short term. In the S&P, it seemed like the institutional computers were programmed to assail the 1450, but not penetrate on the closing basis. We could see another advance on 1450 in early 2013.

This market has not shown momentum or staying power recently. Therefore the bulls seem to be dropping the ball in our trading environment & the bears are slowly taking charge. The overall market environment could drastically shift soon this coming January.

The bulls have had a favorable environment this past week, but are not exhibiting energy. Therefore we might need a much deeper correction from these levels to attract some buyers. It is always concerning to a tick watcher whenever the prices rise but the tick does not expand to the plus side. We are seeing a heavy market that now seems to be buoyed artificially. The rallies in the stocks are not pressuring bonds as significantly as would expect. Therefore today is another example of a skewed correlation between stocks and bonds.

The market had a panicky response to Harry Reed’s comments that he felt the fiscal cliff was not going to be resolved before Dec. 31st. This created a quick void in stock prices. Friday afternoon the S&P was able to rally back 12 full points off the lows warding off the bears.

A holding pattern is in place, as the market is awaiting Obama’s proposal on the fiscal cliff. Volume is substantially lighter. Furthermore, volatility has calmed except when a news item regarding the fiscal cliff is announced. Overall this trading environment is fairly docile & still almost impossible to accurately forecast.